Chairman Rankin called the meeting to order at 10:05 am and asked for a
motion on the draft minutes of the August 21, 2002 CHSWC teleconference meeting.
Commissioner Thacker moved to adopt the minutes, Commissioner Wilson seconded and the
motion passed unanimously.

Impact of Cuts and the Lack of Funding on the Division of Workers
Compensation

Richard P. Gannon, DWC Administrative Director

Mr. Gannon briefed CHSWC on the impact of budgetary cuts in the
Division of Workers Compensation. (DWC). He noted that DWCs funding is not
stable or dependable. Some of the problems experienced by DWC in staffing and funding
levels include: fluctuations in staffing (from 845 authorized positions in 1985 to 1, 242
six years later to 929 positions currently); loss of over 300 positions in the past seven
years during which time the system has become more complex to administer; and structural
budget problems in that positions are funded at 95 percent of the entry level pay while 85
percent of its employees are at the top pay level. DWC has been making up the over three
million dollar differential every year which results from the structural budget problems
by not filling 10-14 percent of the positions. This and the hiring freeze have resulted in
the loss of those positions because Government Code §12436 eliminates all positions
vacant for six months.

Mr. Gannon further noted that DWC began this fiscal year with a
projected deficit of $2.3 million dollars. In addition to this, the DWCs 2003-04
budget must be cut an additional twenty percent which will require elimination of an
additional 180 positions.

Mr. Gannon commented that DWC functions have been seriously affected by
the budget cuts. The adjudication system, which is the core function of DWC, has been
significantly impacted. He noted that although the average time to get a trial has been
reduced from 234 days in 1995 to 132 this year, the statutory mandate requires a hearing
in not over 75 days. Also, the Judicial Study conducted by RANDs Institute for Civil
Justice found that shortages of clerical personnel to move the paper was the principal
cause of delays in the system, but budget restrictions and loss of vacant positions has
resulted in a 30 percent reduction in clerical employees since 1993. Other functions of
DWC have also been compromised by budget shortfalls. The DWC Research Unit is down to 1.6
positions from 14, the information and assistance unit is down to 2 positions and the
managed care program, consisting of a health care education consultant and a researcher in
training, has been significantly affected by the budget crisis and is significantly
understaffed.

Mr. Gannon stated that DWC held a public meeting with the community to
assist him in prioritizing existing mandates and those added by AB 749. Top priorities
which came out from the meeting were to improve the court system functions first and
foremost, and the adoption of the pharmaceutical fee schedule. He remarked that DWC has
implemented some of the recommendations of the CHSWC Judicial Study conducted by RAND.
These include finishing the revision of the rules by the Appeals Board and the policy and
procedures manual, developing a clerical training manual so that staff could perform their
duties in a uniform manner, and reorganizing DWCs managerial structure giving
presiding judges greater authority over decisions in their district offices.

Discussion

Commissioner Davenport asked if anyone at the public meeting suggested
that they would be willing to pay more to accomplish the priorities. Mr. Gannon replied
that the participants did suggest other funding sources outside of the General Fund.

Commissioner Davenport also requested to see a proposed budget that
would enable DWC to function appropriately. Mr. Gannon replied that this budget is
confidential for now, but DWC has done some work in this area.

Chairman Rankin asked what is DWCs budget now compared to 1995.
Mr. Gannon replied that the budget is $80 million currently compared to $100 million in
1995.

Chairman Rankin suggested looking at employer funding as a possible
solution to the budget shortfalls of DWC. He further commented that DWC should calculate
the percentage of employer funding needed to implement AB 749 provisions.

Commissioner Dulich asked what types of funding mechanisms were
suggested at the public meeting to assist DWC. Mr. Gannon replied that user funding was
suggested without any particular explanation as to what type.

Commissioner Steinberg asked if DWCs paper driven system is the
number one problem that the Division faces. Commissioner Steinberg remarked that a user
fee to implement an on-line system might be acceptable if it would enable DWC to come out
of the budgetary crisis. Mr. Gannon agreed and replied that the main problem of DWC is
clerical. He further commented that going to a paperless system would be a positive step
in terms of efficiency and cost savings, but there would need to be a one-time investment
to upgrade technology in many offices. Mr. Gannon noted that the State Compensation
Insurance Fund has a paperless system and that New York also has an on-line system that
works very well.

Commissioner Wilson asked what could CHSWC do for DWC. Mr. Gannon
remarked that CHSWC could assist with exploring user funding and the development of an
on-line system.

Commissioner Steinberg asked if it is possible to investigate and
determine the cost for DWC to institute an online system. Ms. Baker responded that a joint
taskforce has been pulled together consisting of internal staff from CHSWC and DWC to look
at this issue. CHSWC is currently working on a survey of different states to understand
what information technology systems they have implemented.

Ms. Quintana gave a brief overview to the Commission on the impact of
the hiring freeze at the State Compensation Insurance Fund (SCIF). Ms. Quintana commented
that at the end of 2001 SCIF -- a public enterprise fund servicing 262,000 businesses --
had experienced over 100% growth in premium from the previous year and subsequently began
the process of recruiting new staff. During the period from December 2001 to May 2002,
SCIF had processed and trained 974 new hires. SCIF currently has 9,255 authorized
positions by the board and 1,700 vacancies.

However, SCIFs work had been made more difficult by a hiring
freeze that the State placed on SCIF, without exemption, in June 2002. One of the greatest
difficulties has been the enormous workload demands placed on staff. SCIF projects that in
2002 its staff would have worked 810,000 hours, with 15% of these hours concentrated in
claims handling. Ms. Quintana stated that although they have been dealing with hiring
freeze problems and are not able to provide the same quality of service, SCIF has been
able to put together a taskforce to address the changes in AB 749.

Discussion

Commissioner Davenport asked what have been the changes in service due
to the hiring freeze. Ms. Quintana stated that the processing of applications for
policyholders has been slowed down. However, she pointed out that there is a great
variation between the application processing times and service since some SCIF offices
have been impacted more than others.

Commissioner Dulich asked if there have been any changes to the
caseloads before and after the hiring freeze. Commissioner Dulich also inquired how many
of new hires/transfers have gone into clerical classifications vs. claims.

Ms. Quintana replied that the caseloads had remained relatively the
same. However, cases have remained opened longer since lead adjusters have to take time
away from their cases to train newly hired staff. Ms. Quintana did not have the figures
for new hires in clerical vs. claims, but she would be able to give these figures to
Commissioner Dulich later.

Commissioner Steinberg asked why the hiring freeze was placed on SCIF.
Ms. Quintana replied that she did not know for sure. She stated that SCIFs financing
does not have any effect on the states budget and SCIF was usually able to obtain an
exemption from the freeze in the past. Finally, Ms. Quintana emphasized that if the hiring
freeze is not lifted, employers and workers could be further impacted.

Commissioner Rankin suggested that the Commission members prepare a
letter to the Governor indicating CHSWCs concerns of the impact of the hiring freeze
on the administration of benefits and policies and pointing out that SCIFs funding
has no impact on the General Fund.

CHSWC Vote

Commissioner Wilson moved that CHSWC prepare and send such a letter to
the Governor. Commissioner Dulich seconded and the motion passed unanimously.

Presentation on CHSWC Study of Permanent Disability: Public
Self-Insured Employers in California

Robert T. Reville, Director, RAND Institute for Civil Justice

The study entitled "Workers Compensation at Public Agencies
in California" is part of an ongoing evaluation of the workers' compensation
permanent partial disability system in California that CHSWC began in 1996. The study
examines the wage losses experienced by workers injured at public agencies and state
policies on compensation for Public Safety. Dr. Reville presented the preliminary findings
of the study, emphasizing that it should be viewed as a work-in-progress. A draft of the
study report will be completed by the December 2002 CHSWC meeting.

The study found that earnings losses and pre-tax wage replacement rates
for workers with permanent partial disability are similar between public and private
self-insured employers when public safety employees are excluded from the analysis. Also,
public safety employees are paid higher benefits and have a much higher likelihood of
retirement. Dr. Reville also presented results from a "Survey of State Policies on
Compensation for Public Safety Employees". The survey indicated that:
Californias workers compensation for public safety is generous compared to
other states, but not the most generous. Also, some states such as Georgia and Florida
control costs of public safety benefits by restricting eligibility for increased
compensation for public safety employees.

Dr. Reville concluded that higher compensation for injured firefighters
and police officers has an important public benefit. However, the cost to public employers
can be mitigated by targeting benefits to workers injured "in the line of duty"
or during "heroic acts", encouraging modified work while temporarily disabled.
Dr. Reville noted that modified work could also help in encouraging later retirement when
a public safety employee is permanently disabled.

Discussion

Mark Webb of American Insurance Group questioned the representativeness
of the sample for the study. Dr. Reville responded that while age group 21-30 was removed
from analysis since the sample size was too small, the remaining samples used in the study
were representative.

Commissioner Rankin asked if the study looked at other occupations
aside from public safety. Mr. Reville replied that the study focused only on Labor Code
Section 4850 public safety occupations.

Commissioner Rankin announced that Dr. Reville recently received a
promotion at RAND and is now the Director of the Institute for Civil Justice.

Presentation on CHSWC Treating Physician Presumption Report

Frank Neuhauser, Survey Research Center, UC Berkeley

Before 1993, whenever a medical issue arose in a workers
compensation case, many medical reports were involved in the resolution. In addition to
the reports of the treating physician, the applicant and the defendant were each entitled
to procure a medical-legal evaluation and report, in each appropriate medical specialty.
In the 1993 reforms, the role of treating physician in evaluating disability was increased
in the workers' compensation process. They were required by legislation to report on all
medical issues necessary to determine eligibility for compensation. In addition, whenever
another medical evaluation is obtained, the findings of the treating physician are
presumed to be correct. This gives a much greater weight to the findings of the treating
physician. The statute was originally interpreted to cover medical-legal issues, but in
1996 a series of case decisions  Minnear, in particular -- interpreted the
statute to cover medical treatment and increased the requirements for rebutting the
presumption.

CHSWC contracted with the University of California for a project to
evaluate the role of the treating physician, the quality of treating physician reports,
and the cost-benefit of the presumption of correctness of treating physician reports. The
study found that the primary treating physician reports compare poorly with reports
completed by a Qualified Medical Examiners (QME), even when the treating physician was a
QME and that there was no evidence to demonstrate reductions in medical-legal costs
resulting from the presumption. In May 2000, the Legislature requested that
CHSWC update its study report on the presumption of correctness for treating physician
reports.

Mr. Neuhauser presented the final results from the updated CHSWC study.
The study found that the Minnear decision had the effect of increasing average
medical costs by an additional 11.3% when the worker controlled the physician; that Minnear
increased service utilization by an additional 7.7% when the worker controlled the
physician; and that the impact of Minnear on system wide medical costs are
estimated to be from $300 million to $800 million per year.

Mark Webb of the American Insurance Association asked if the changes to
the medical-legal fee schedule in 1993-94 had any impact on medical treatment patterns
leading to the increase in utilization. Mr. Neuhauser responded that there were no
observed changes in the medical treatment patterns for injuries in 1993 and 1994.

In response to a question regarding the change in temporary disability
duration associated with Minnear, Mr. Neuhauser replied that this was examined in
an earlier report to the Commission and that there was an observed change in temporary
disability associated with the presumption of primary treating physician.

CHSWC Vote

Commissioner Wilson moved to approve the final report entitled
"Doctors and Courts: Do Legal Decisions Affect Treatment Patterns?" Commissioner
Davenport seconded and the motion passed unanimously.

CHSWC Strategic Plan

Christine Baker, Executive Officer, CHSWC

Ms. Baker presented a status report regarding the CHSWC Strategic Plan,
which has been in development throughout this past year. In March 2002, CHSWC staff met
with representatives from the workers compensation community including labor
organizations, employer organizations, insurers, and attorneys requesting input regarding
future CHSWC activities in light of AB 749. Based on these meetings, a Background
Issues document was developed and distributed to the CHSWC members.

A two-day CHSWC meeting in July 2002 was devoted to prioritizing
identified areas and developing a preliminary research agenda. At the July meeting, CHSWC
staff presented accomplishments to date, which included research that led to policy
changes in California. Active projects in process were also presented. Subsequently, CHSWC
members requested that staff develop a draft strategic plan, action items, and a
communications plan based on priorities discussed at the planning meeting. At its August
meeting, CHSWC voted to distribute the draft strategic plan to all interested parties for
review and input. The draft was sent out and comments received. Staff then developed the
final draft Strategic Plan which has been presented to the CHSWC members for
consideration. Ms. Baker noted that the Strategic Plan should be considered a "living
document", because the priorities could change as well as funding.

CHSWC Vote

Commissioner Dulich moved to approve the CHSWC Strategic Plan as a
"living document." Commissioner Thacker seconded and the motion passed
unanimously.

Insurance Market Study Proposal Bid

Christine Baker, Executive Officer, CHSWC

Ms. Baker reported on the status of the CHSWC study of the California
Workers Compensation Insurance Market. She reported that CHSWC entered into the
State of Californias Request for Proposals (RFP) process on September 9, 2002 to
select an independent research organization to carry out the study. She presented a
briefing on the written and oral evaluation process of selecting the most qualified RFP
respondent. Ms. Baker noted that Hays Companies was selected through the RFP process to
conduct the CHSWC Study of the California Workers Compensation Insurance Market.

Commissioner Steinberg remarked that he did not feel comfortable with
the Hays Companies selection. He commented that he was unsure whether the Hays Companies
would be able to meet the high standards that CHSWC has for its studies. Ms. Baker noted
that the Hays Companies met the RFP criteria. In addition, the RFP was evaluated by a team
of highly qualified and experienced people from CHSWC, DWC, WCIRB and CDI, with two CHSWC
members acting as observers and representing labor and management.

Commissioner Wilson remarked that he was an observant in the RFP
process and feels that the Hays Companies can give a practical report to the Workers
Compensation community with recommendations that could be followed. He stated that the
problem of the insurance industry market is serious and that CHSWC should proceed with the
study, which would be valuable to the community.